On an average, an Indian farmer gets an annual subsidy of $250 whereas EU and US farmers get $60,000. Now name the country which had to fight a subsidy battle at the WTO Ministerial Conference (WMC) underway in Buenos Aires?

India, of course. The most critical issue for India was to assert its right to buy food grains at the minimum support price (MSP) from farmers for later distribution to the poor. Many developed countries oppose this. They argue that such buying may amount to a trade-distorting subsidy, which violates the provisions of the WTO’s Agreement on Agriculture (AOA).

Essentially, the MSP programme links poor farmers with poor consumers to ensure food security for both. For each $100 value of produce, Norway & Switzerland grant subsidy of $60 while South Korea and Japan grant subsidy of $50. The US gives $60 on Canola, $80 on rice. The EU provides $65 on rice, $75 on olive oil, and $110 on sugar.

Such enormous spending by the developed countries leads to surplus production which is then exported at low prices. Cheaper imports depress local prices, make local farming unviable, leading to import dependence. Developed country subsidies are distorting the agriculture pattern in most countries.

Why is India then fighting the subsidy battle at WTO and not the EU, US or Japan? AOA legalises massive subsidies given by the developed nations by classifying these as non-trade distorting. AOA does this by organising subsidies under three colour boxes (green, blue, amber). Subsidies in the green box are non-trade distorting, hence a country can give as much as it wants. Subsidies in the blue box are less trade distorting while those in the amber box are most trade distorting and have to go gradually.

AOA classifies cash payments by developed countries to its farmers under the green box but MSP programmes of developing countries under the amber box. So the three box system enables the developed countries to continue to give the same amount of subsidy as before.

Such rules further the interests of US and EU based large agriculture trading firms. It is rumoured that former Cargill vice-president, Dan Amstutz, prepared the first draft of AOA. WTO incorporated AOA only in 1995. Before that, WTO negotiations focused on reduction of tariffs on industrial goods only.

AOA says if the MSP for a produce is more than its price prevailing in 1986-88, it will amount to a subsidy. And the annual subsidy on a produce should not exceed 10% of its production value. AOA wants us to compare MSP not with the current market price but with a 30-year-old price. So even if MSP is less than the current market price, it is still a subsidy. Raising the bar further, AOA interpretations imply that subsidy must be calculated on 100% of the produce and not on the quantity bought by the government at MSP.

With such illogical rules, many developing countries have already breached or are set to breach the subsidy limits. An amendment in the AOA is needed for accepting MSP purchases as green box subsidy.

Giving in to this logic, WTO members agreed to a peace clause at the Bali Ministerial Conference in December 2013. The peace clause implied that even if a developing country gave subsidy amounting to more than 10% of production (based on the illogical AOA formula), other countries would not challenge the action at the WTO till 2017. In December 2014, the WTO General Council approved an extension of peace clause till such time a permanent solution is agreed by the members.

But the Bali peace clause is difficult to use as it comes with many painful conditions. India pressed for a continuation of the peace clause without the problematic conditions until a permanent solution is found. Deadlocked on this very issue, the Buenos Aires round looks doomed with no significant results in any area.

Subsidies are only a part of the AOA story. Other parts are equally discriminatory. AOA needs complete revamp to ensure that the food security and livelihood concerns of at least two billion impoverished people are not trivialised.